Landed cost
Max Pechonis · Founder, Rebridge ·
Landed cost is what a product really cost you by the time it is sitting on your shelf, not just the price on the invoice. Two hundred units invoiced at $2,400, plus $320 freight, $190 duty and $90 handling, cost $3,000. That is $15 a unit, not the $12 the invoice shows.
The invoice is the first layer, not the whole cost
Most shops price off the invoice, because the invoice is the number in front of them. The goods usually cost more than that.
In the example above the real cost is 25% higher than the line on the invoice. Set your retail price from $12 a unit and your margin is a quarter thinner than you think it is, on every single one.
What goes into it
Sources agree on the pieces. Where they stop varies, which is worth knowing before you compare your number with anyone else's.
The goods. What the supplier charged you.
Freight. Getting it to you, whether that is a container or a courier.
Duty and tariffs. If it crossed a border. Usually worked out on the value of the goods plus the freight, not the goods alone.
Insurance. Cover while it is in transit. Small, but real on anything valuable or fragile.
Handling. Port charges, customs brokerage, anything you pay to get it off the truck and onto the shelf.
Some shops also fold in currency conversion, or the cost of returns on goods that come from a long way away. There is no single right answer, so pick what you will include and stay consistent, because a landed cost that keeps changing shape is worse than one that is slightly incomplete.
Spreading it across the units
The extras arrive as one number for a whole shipment. You need them per unit.
The simple way is to divide by the number of units. $600 of freight, duty and handling across 200 units is $3 each, so a $12 item lands at $15.
That works when the units are similar. When they are not, by value is usually fairer: a $200 jacket and a $9 keyring should not carry the same freight. Both methods are defensible and shops use each. Whichever you pick, apply it the same way every time, or you cannot compare one order against another.
When it matters most
Landed cost matters more the further your goods travel and the thinner your margin is.
A local supplier dropping off a pallet with free delivery has almost no gap between invoice and landed cost. An imported container with duty on it can be 20 to 30% apart, and that gap is roughly the size of the margin most shops are working to protect.
It also changes which products look good. Two items at the same invoice cost are not the same deal if one ships from across the country and the other from across the world. Comparing suppliers on invoice price alone picks the wrong one often enough to matter.
What it does to the rest of your numbers
Cost is an input to almost everything a buyer looks at, so getting it wrong once gets it wrong everywhere.
Your margin is worked out against cost. GMROI is margin against stock at cost. Inventory turnover is what the stock cost you against what you usually hold. Understate the cost and every one of those comes out flattering.
Which is why it is worth deciding once what you include, writing it down, and using the same rule next season.
Questions
How do I calculate landed cost?
Add the price of the goods, the freight, any duty, insurance and handling, then divide by the number of units. $2,400 of goods plus $600 of extras across 200 units is $15 a unit rather than the $12 on the invoice.
What is included in landed cost?
The goods, freight, duty and tariffs, insurance in transit, and handling such as port charges and customs brokerage. Some shops also include currency conversion or returns costs. There is no single standard, so the thing that matters is deciding what you include and staying consistent.
Should I spread freight by unit or by value?
By unit when the items are similar, by value when they are not. A $200 jacket and a $9 keyring in the same carton should not carry the same freight. Both methods are used and both are defensible; applying one of them consistently is what lets you compare orders.
Is duty worked out on the goods or on the goods plus freight?
Usually on the declared value, which commonly includes the freight rather than the goods alone. It varies by country and by what you are importing, so it is worth checking against your own customs paperwork rather than assuming.
Does landed cost change my margin?
It changes what your margin actually is, not what it appears to be. Pricing from the invoice when the goods cost 25% more means the margin you planned was never the margin you had. The number was always wrong; landed cost just shows it.
Does it matter for a local supplier?
Much less. A supplier delivering free from the next town leaves almost no gap between invoice and landed cost. The further the goods travel and the more borders they cross, the wider the gap gets.
How does landed cost affect GMROI and turnover?
Both are worked out against what the stock cost you, so understating cost makes both look better than they are. If you are going to use those figures to decide what to reorder, the cost underneath them has to be the real one.
Should landed cost go into my point of sale?
If your system allows it, yes, because every margin report then uses the real number without anyone having to remember. If it does not, the practical fallback is working out a per-supplier uplift and applying it when you price rather than ignoring it.
What is the difference between landed cost and cost of goods sold?
Landed cost is what one unit cost to get onto your shelf. Cost of goods sold is what the units you actually sold cost you over a period. Landed cost feeds into it: get the first wrong and the second is wrong too.
Does Rebridge put freight on the purchase order?
Yes, when the document states it. Freight read off a vendor document is written onto the order so the total matches the document it came from, rather than being dropped. It is left alone in a few cases: when the document shows no freight, when the order already has it, when the order is closed, and when the supplier is billed in another currency, where we have not measured the behavior well enough to be confident. Spreading that freight across the units is a separate step and depends on which method your shop uses.